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ES Daily Plan | January 16-17, 2023
Friday's session was a triple distribution trend day up with two sets of singles. We ended with a spike away from value.
The main thing that I'm observing is whether these higher prices will get accepted or rejected.
Recap & Plan
Smashlevel 4008 was tested early in Friday's ON session and found sell activity (ONH: 4008.25). It's important to note that there was still unfinished business from Thursday's session, indicating crowded buyers at the highs. This often leads to a reaction where prices move away from that area to shake out those weak longs and attract stronger buyers at lower prices. We saw a pullback into the closing session on Thursday, but the inability to quickly regain 4008 in the ON session further confirms that lower prices were necessary. During the Asian session, the market reached a low of 3990.75, just a few ticks above the first target on the downside at 3989. The European session was unable to achieve a new high and as a result, we saw a notable liquidation break. The last intraday downside target 3962 was hit before the RTH open, but there was no confirmation of weakness from VIX, making it unfavorable to initiate new shorts at that point. Break and hold below 3962 with a supportive VIX is a different story, but this liquidation break was the lower prices that stronger buyers were waiting for. I published a visual of this sequence in Friday's recap. Friday’s full session low was 3961.75.
Friday’s RTH session opened within Thursday’s excess and we immediately started squeezing those late shorts that were initiating trades at unfavorable location, according to my own system. The poor structure from the ON session was filled already during the initial balance, which tells a story about how unfavorable that location was to short. Even if we were to have a down day, you would still want to sell at higher prices, and not around 3962. When the ON breakdown single prints were regained, sellers didn’t have much to offer, and we were one time framing up intraday during the entire PM-session. Thursday’s unfinished business at the highs was cleaned up in the process.
We ended the session with a spike to the upside, with spike base of 4016. A spike is when we have single prints in the last 30 minutes of the RTH session (M-period), which is marked in blue on the chart. After the spike was formed, the market closed, meaning we don’t have any further market generated information until the next day, which ultimately means that we don’t know whether the higher prices of the spike will get accepted or rejected. Trading within and above the spike (Acceptance) is a more favorable outcome for buyers since that confirms the higher prices of the spike, meaning prices have still not auctioned high enough to find an opposite response. Trading below the spike (Rejection) is a more favorable outcome for sellers since that negates the prices of the spike. Note where Friday’s value is located.
Friday’s session was a triple distribution trend day up, with two sets of single prints. A bullish outcome will have no interest in fills of the highlighted fill section and would target an upside continuation towards the prior Weekly extreme High 4045 and the last intraday upside target 4068. A less bullish outcome will come down and fill or partially fill the fill section, but have no interest in trading within Friday’s value area < 4002. A bearish outcome obviously fills the poor structure and establishes acceptance within Friday’s value and would target a value traverse for a test of the last downside intraday target 3975, and potentially challenge the daily one time framing up in the event of further weakness.
Tomorrow, pay attention to two additional VIX levels: 19.20 and 17.50. These levels can provide confirmation of strength or weakness. If we break and hold above 4068, a VIX below 17.50 would confirm strength. If we break and hold below 3975, a VIX above 19.20 would confirm weakness. Overall, it's important to exercise caution when trading outside of the highlighted yellow levels. A non-cooperative VIX may suggest possible reversals i.e trade setups.
Be sure to check out the Weekly Plan, which provides a broader perspective and highlights significant levels of interest to watch in the coming week.
Disclaimer: Futures and options trading involves a high level of risk, with the potential for substantial losses. The information provided in this newsletter is for informational purposes only and is not intended to be a trade recommendation. It is the responsibility of the reader to make their own investment decisions and they should seek the advice of a qualified securities professional before making any investments. The owners/authors of this newsletter are not certified as registered financial professionals or investment advisers.
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